LONDON (Dow Jones)--Crude oil futures maintained their strong start to 2009 Monday as supply-related issues distracted market participants from their focus on demand fears linked to global economic slowdown.
Fears that violence in the Gaza Strip may prompt reaction from regional oil producers continued to spur crude, while a spat over natural gas prices that has halted gas flows between Russia and Ukraine fostered anticipation that a search for alternatives to natural gas could lead to increased demand for crude oil products.
Crude prices climbed to three-week highs earlier Monday and were expected to retain support as long as geopolitical tensions persisted, analysts said.
"Prices are likely to remain firm as the global political uncertainty should outweigh economic gloom," said Rob Laughlin, analyst at MF Global in London.
At 1155 GMT, the front-month February Brent contract on London's ICE futures exchange was up 60 cents at $47.51 a barrel.
The front-month February light, sweet, crude contract on the New York Mercantile Exchange was trading 60 cents higher at $46.94 a barrel.
The ICE's gasoil contract for January delivery was up $45.75 at $473.50 a metric ton, while Nymex gasoline for February delivery was up 260 points at 113.65 cents a gallon.
An Iranian military commander Monday called for Islamic countries to cut oil exports to supporters of Israel in protest to the invasion of Gaza. But while a Gulf-based Organization of Petroleum Exporting Countries official later said the organization was unlikely to discuss the call, nervousness surrounding the conflict persisted.
"It's all about uncertainty over the Gaza developments. It's about how it could be treated by the international community - it's the main issue and has been enough to drive this market higher," said Ole Hansen, manager of futures and fixed-income trading at Saxo Bank in Copenhagen.
"It's having no implications for supply at all, it's the repercussion that the market is worried about."
Some European countries reported decreased natural gas flows from Russia Monday, four days after Russia's OAO Gazprom (GAZP.RS) halted deliveries to Ukraine, a key transit country for Russian gas flows to the European Union. The halt came after talks to negotiate a new supply contract for 2009 broke down due to a dispute about price. While other key customers, such as Germany, reported full supplies Monday, the oil market remained wary that possible future disruption, or even planning for such, could boost demand for oil products as an alternative for heating and power generation purposes.
"If there is a serious interruption to natural gas flows, this could provide support to oil markets through the substitution impact on fuel oil, naphtha, and gasoil," said Olivier Jakob, managing director of Swiss consultancy Petromatrix.
Firmer Asian and European equity markets, as well as news that the U.S. is to resume oil purchases for its Strategic Petroleum Reserve, bolstered the case for higher prices Monday, which saw Nymex futures build on last week's climbs to a three-week high of $48.68 at one stage Monday.
However, any reminders of the ongoing difficult global economic climate could recalibrate the psychological balance between demand and supply factors, market participants said. A raft of macroeconomic data is due out this week, including closely watched U.S. December non-farm payrolls Friday.
"They're not going to be that pretty," Saxo's Hansen said. "The focus has turned a little bit to the supply rather than the demand side, but a few bad numbers could turn the sentiment again."
-By Nick Heath; Dow Jones Newswires; (4420) 7842 9405; nicholas.heath@dowjones.com